From modest beginnings as a taylor shop in Santiago, Chile and founded by Italian immigrant Salvatore Falabella in the late 1800s, S.A.C.I. Falabella has grown to become the biggest department store chain in Latin America as well as the most valuable Chilean blue chip. Sales this year are projected to reach close to $ 15 billion while profits will surpass $ 1 billion. As a consequence, fetching close to $ 30 billion in market value and thus trading at 30 times earnings, the stock is not cheap. Nevertheless, this department store juggernaut has grown mostly through organic means using retained earnings along with the issuance of common stock in the company doing in the process little use of debt and accordingly, the Chilean blue chip has sizable room and unused leverage for expansion throughout the region. In fact, this is one maneuver Chilean retailer Cencosud S.A., Falabella’s closest competitor, has exhausted over the last decade and is the reason why with sales expected to surpass $ 20 billion this year, the company trades at half the market value Falabella is currently fetching after reporting half as much in earnings because the retailer is heavily indebted.
Moreover, with management being led by the Solari Donaggio brothers, who all three hold MBAs from prominent American universities such as the Wharton School and the Sloan School of Management at MIT, the Solari clan in Chile has steered the company in a very clever way because they now have what it takes to make good use of leverage and swallow attractive retailers that are somewhat abundant in Latin America while continuing expanding its current operations organically. These operations include approximately 100 department stores, more than 200 home-improvement supply stores, close to 150 grocery stores, 20 indoor malls, an insurance company, a travel agency, a commercial bank and a financing enterprise scattered throughout five countries in South America including Chile, Peru, Argentina, Colombia and Brazil while employing around 100,000 people. Altogether, this company has minted four billionaires currently ranked by Forbes including Teresa Matilde Solari Falabella, Maria Luisa Solari Falabella, Juan Cuneo Solari and the Solari Donaggio brothers. In addition, José Luis Del Río Goudie, Sergio Cardone Solari and Liliana Solari Falabella are also presumed to be billionaires in their own right but wishing to keep a low-profile instead.
To conclude, I think that although right at the present juncture Falabella as a stock is not cheap, the company is very solid after possessing sound finances with light use of leverage and consequently, adding it in one’s portfolio makes good sense. Some way or the other, this blue chip is the most valuable company in Chile and right now the prospects for the stock to gain even more value are promising.